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Karin Corporation keeps careful track of the time required to fill orders. The times required
for a particular order appear below:
Hours
Processing Time
0.6
Inspection Time
0.3
Moving Time
2.1
Storing Time
8.4
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Sam Almasi, the CEO of Almasi Technologies Inc. (ATI), a biotechnology firm had recently
returned from a conference on modern cost management and performance measurement
methods where he was exposed to target costing, value-chain analysis, balanced scorecard,
activity-based management, and other ideas.
ATI is a five-year old company operating in a growing, but competitive market. It develops
and produces a number of different enzymes for use by research scientists and
pharmaceutical companies. Its main competitors are also small to medium sized firms just
like ATI. The key to growth in this industry is the ability to develop new products in a short
time. Gail Stevenson, the vice-president (VP) for research & development (R&D) has noticed
that some of ATI's new developments did not perform well because of the delays in their
introduction into the market. Stevenson is very keen on hiring the best scientists and
ensuring that they stay current in their fields because knowledge is the key competitive
weapon in the biotechnology industry.
Bob Phillips, the controller of ATI had another concern. He has been noticing that the new
products were not only delayed but their actual development costs were usually higher than
budgeted. One of his goals was to see that the new products were profitable for the
company.
Linda Joseph, the production manager, had a different concern of her own. Based on her
observation, the production of the new enzymes was taking longer. Her feeling was that the
products spent too much time in the quality control (QC) department. Barry Laker, the
manager of the QC department argued that the new enzymes lacked the rigorous
specifications that are demanded in the marketplace. Consequently, the QC department has
to perform additional tests to get to the root cause of the problems.
Almasi had heard complaints from all quarters, and decided to convene a meeting of all the
department heads.
Almasi: Good afternoon, everyone. I am troubled that despite hiring a number of talented
scientists, we are unable to compete effectively in the marketplace. Many of the recent
entrants in the game seem to be beating us easily.
Stevenson: Sam, the key to our growth is rapid introduction of new products. Although my
scientists are developing new enzymes in record times, they seem to be getting held up in
manufacturing and especially the QC department.
Laker: Sam, I think I can pinpoint the root cause of the problem. I agree that our scientists
are developing new enzymes in record times, but they do not seem to be paying any attention
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to standards. It looks like my department will have to provide training to them regarding
quality control matters.
Stevenson: With due respect, I do not think there is more to know about QC standards. It
looks like the department wants more attention and is therefore creating all this unnecessary
fuss.
Joseph: I think I will agree with Barry that there are problems at the R&D side. My
production scientists are also complaining that adequate specifications have not been
developed; they have to constantly phone their R&D counterparts for clarifications.
Stevenson: I do not believe that the production problems can be attributed to R&D. I have
personally screened each and every scientist during the hiring process.
Phillips: I don't think we will make much progress as a company if we keep pointing fingers
at one another. We all must realize that all problems, regardless of their origin, finally affect
the bottom-line of our company. Unless we set aside our differences and work together as a
team, we will be unable to compete with our rivals. Some of our competitors follow best
practices, which we must try to emulate.
Almasi: I agree with Bob. We must all look for solutions. I recently attended a conference
where noted speakers talked about the value-chain of a company, interrelationships between
functions, and the balanced scorecard. In fact, some speakers suggested that companies
must stop discussing in terms of individual functions or departments; instead they must talk
in terms of processes and understand linkages among all the processes that exist in an
organization. I believe there are a number of ideas that we could adopt. I will leave the
conference proceedings in the library, and suggest that we all read about these different
topics. How about getting together after six weeks and discussing a plan of action? Thank
you and see you all after six weeks.
Required:
Assume the role of a consultant preparing a report for ATI. Discuss the following aspects in
your report:
The internal value-chain of ATI.
The balanced scorecard. Identify the goals of the company under each perspective of the
scorecard and cause-effect relationships, and develop potential measures that could be
used.
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